Tech Tools and Taxes: Write-Offs for Your Gadgets

Today, many individuals rely on their smartphones, tablets, and laptops to conduct business wherever they may be. They use these items to connect with coworkers, customers, and suppliers, and to perform tasks and find information essential in business. For example, there were 28 million iPad users in 2011, and that number is expected to nearly double by the end of 2012; many of these users are employees and self-employed individuals who now find work without their tablets to be unimaginable.

The mobile workforce has costs for connectibility:

• There are purchase costs for the items and peripherals (carrying cases, printers, etc.).
• There are monthly telecommunication costs for telephone and Internet access.

What are the tax ramifications of buying and using these tech tools on the job?

Employer-furnished items

If your employer gives you a smartphone, you aren’t taxable on this benefit as long as there is a business reason for its use other than as additional compensation for the employee. The item is viewed as a nontaxable working condition fringe benefit. The IRS has listed these three situations as good noncompensatory business reasons:

• The employer needs to contact the employee at all times for work-related emergencies.
• The employer requires the employee be available to speak with clients at times when the employee is away from the office.
• The employee needs to speak with clients located in other time zones at times outside of the employee’s normal work.

Employee-purchased items

If, as an employee, you buy the items needed to do your job and don’t receive reimbursement from your employer, you can claim write-offs for the items as miscellaneous itemized deductions on Schedule A of Form 1040. Deductible costs include the purchase price of the items as well as their monthly telecommunication costs. However, items that are expected to last more than one year are subject to depreciation.

If your employer reimburses you for the items you buy under an “accountable plan,” you are not taxed on the reimbursement. Of course, you cannot deduct the cost of the items because of the reimbursement. An accountable plan is one in which you are required to substantiate the cost of the items to your employer and meet certain other requirements.

If your employer reimburses you for the items under a nonaccountable plan, then you’re taxable on the reimbursements, but can claim an offsetting miscellaneous itemized deduction for them.

Self-employed individuals

If you are a sole proprietor or independent contractor, you can write off the cost of these items as a business expense on Schedule C of Form 1040. As mentioned earlier, the items that are expected to last for more than one year are depreciable. However, you can write off the full cost as a Sec. 179 deduction as long as you are profitable (a dollar limit applies for the Sec. 179 deduction).

Conclusion

Be sure to keep good records of costs related to tech devices so that you can maximize your deductions at tax time. When in doubt about write-offs for your items, talk with a tax advisor.